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What Are Data Customers?
Business owners (large or small) must understand to whom financial results will be communicated. The parties to whom this information is provided are referred to as data customers. The most important data customers at the early stage of a small and emerging business are the owners. Being responsible for all decision making and strategy makes those managing the business the number-one customer. The base of data customers will expand as the company matures and takes on thirdparty financing, whether it is bank debt or equity financing from a public offering or private placement. Data customer requirements will grow from the need to see the rudimentary aspects of operations to the more complicated statutory needs of banks or the Securities and Exchange Commission.
The small and emerging business owner’s needs for data are easy to define. Managers of small organizations usually are focused on customer needs and the important metrics that drive the business. What about the needs of other potential data customers? Will the finance function be positioned to serve these needs? Who are those customers and what do they want? Is there anything that can be done now to lay the groundwork for meeting their needs? It may help to ask these questions:
- What are the owners’ requirements as data customer?
- What is the turn-around time for a typical data request?
- Which data customers need summary data?
- Which data customers need detail data?
- Are the internal data customers (those within the organization) financial or nonfinancial personnel?
- Do internal data customers have ready access to company data?
- Can the company’s top five external data customers be named?
- Does the company have a standard suite of reports or formulas that management references regularly?
Tying in to Life-cycle Considerations
At this stage of strategy development, a rough time line or expected sequence of events should be in place outlining identifiable company milestones from inception to exit. The time line will identify all significant events in the planned life cycle of the business and their expected time of occurrence. If any of these significant events entail financing, business combinations, or a public offering, due diligence must be performed on company financial statements. The company may be forced to produce complex, legally defined financial statements. These financial statements and related disclosures will be reviewed, questioned, and adjusted throughout the due diligence process that will precede most relevant milestone events. This means the company will be subject to a new, perhaps unprecedented level of scrutiny.
Understanding the characteristics and level of sophistication of data customers is crucial at this stage of finance strategy development. Understanding the different types of data customers and their motives will be crucial as the company matures. An important consideration is to understand the distinction between sophisticated and unsophisticated data customers. More often than not, a particular data customer is standing between the business and a particular milestone objective. Giving the data customer what is wanted in a timely manner may mean the difference between success and failure when encountering a life cycle event. The finance function must recognize this and be poised at all times to deliver timely and accurate information for all financial data requests. Ensuring this aspect of data delivery involves planning all infrastructure and financial statement presentation policies in advance of need. Waiting until the need is imminent is too late to begin conceptualizing follow-through.
Palmer Products’ high-level growth goals for the next 10 years: Are Mark and Andrew aware of what is required to achieve these goals? Doubling revenue in Year 2 may not be difficult, but doubling revenue in Years 3 and 4 may require an infusion of cash to fund the storage of product while they wait for customer payments. How much will they need? What about their website and advertising campaigns—how much will they need to finance these endeavors? If they need less than $1 million, chances are a local bank loan will cover it. Producing the volume to break the $1 million mark in Year 6 will require Palmer Products to hire help to handle order processing, shipping, and inventory management.
The company will need more funds to finance the burgeoning business. At some point Mark and Andrew will have to go beyond what a bank is willing to lend. Doing this may mean taking on equity partners or making some sort of advanced debt arrangement. Eventually they will want to take the company public and surrender control of the business.
Somewhere along the way, a level of examination (audit or formal review) will be required for Palmer Products’ financial statements. If the company takes on financing from outside the company, whether it is bank debt or equity financing from the capital markets, some sort of limited review procedures will need to be performed periodically on their financial statements. Securing bank financing at this early stage of the business may require a local or regional audit firm to perform this service, with the financier (bank or financial institution) seeking comfort in compliance with debt covenants and review procedures. If the brothers choose to go public, a comprehensive audit is required and a host of detailed filings will need to be made with the SEC.
If Palmer Products goes public, its future will depend on its ability to present itself to the world via financial statements. Is the company prepared to generate financial statements that conform to generally accepted accounting principles? Do proper controls exist in the finance organization to ensure the proper handling of cash receipts and cash payments? Are processes and information systems strong enough to generate the proper analysis schedules required by examiners (auditors)? Can they be generated in a timely manner? These issues will be addressed in detail farther up the finance strategy pyramid. At this stage it is essential to evaluate the analysis and determine:
- The need for generating financial data (statements)
- For whom the financial data (statements) will be generated
- The level of sophistication of the financial statement audience (data customers) | 
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